Valentine's Day - the Hangover

...is, there should be enough information in the divergence itself to make
an educated decision as to which one will maintain trend and which one will
break. The divergence is the first clue that something's not quite right. Like
a romance that grows distant over time, one of the respective parties likely
knows enough about the other to determine if the relationship can be restored
- or if it is in fact broken. Markets, just like women - need your complete
attention. It's imperative to know as much about the respective relationship,
so that you will have the emotional aptitude to determine its course. It inevitably
becomes complicated, less we be reminded of the overused - although timeless,
relationship and market wisdom from the Dr. Phil of his time - Mr. John Maynard
Keynes,

"Markets (and people) can remain irrational far longer
than you or I can remain solvent (or sane)."

When thinking about the equity markets here and their divergence from the
rest of the pack (currency, commodity and credit markets), I have a hard time
seeing the impetus for what will be required to have the "Three C's" come eye
to eye with the equity markets perspective. Over short timeframes, stocks tend
to be the most insensitive asset class to their surroundings. Going on a bender
while the other parties prepare for a wake is certainly within their psychological
profile. I am speaking through my own biases of course, but if I was a bull,
I would feel more comfortable if the market had traded in concert with a declining
euro or a strengthening Treasury market and was loaded with heartbroken sentiment
for the next pivot. Markets can jump with great elasticity if the bus is crowded
to one side. My point being, even if the euro decides to bounce like any dead
cat can - the amount of reflex in equities will likely be muted because the
sentiment picture has become so exuberant.

Below is a fractal study of 10 year Treasury yields that compares its past
year trajectory with the SPX from the 2008/2009 timeframe. As apparent in the
chart, both markets have corrected with very similar structures, proportions
and momentum signatures.

If the fractal proves prescient for TNX, and considering that in the past
Treasury yields have typically bottomed before the equity markets -
the relationship between Treasuries and equities will be restored by Valentine's
Day - with what could only be considered a very painful hangover for stocks.

Although I am an active trader, I have always taken a broad perspective when
approaching the markets. I respect the Big Picture and attempt to place each
piece of information within its appropriate context and timeframe. I have found
that without this approach, there is very little understanding of ones expectations
in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes.
I want to know which way the prevailing wind is blowing, where the doldrums
can be expected and where the shoals will likely rise. I will not claim to
know which vessel is the fastest or most comfortable for passage - but I can
read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize
its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances
should any content be used or interpreted as a recommendation for any investment,
trade or approach to the markets. Trading and investing can be hazardous to
your wealth. Any investment decisions must in all cases be made by the reader
or by his or her registered investment advisor. This is strictly for educational
and informational purposes only. All opinions expressed by Mr. Swarts are subject
to change without notice, and the reader should always obtain current information
and perform their own due diligence before making any investment or trading
decision.